This makes the recent forced de-listing of Fannie and Freddie bad news for China, since it has sent a negative signal to markets about the two quasi-government entities' viability. (Fannie and Freddie were told to de-list because their collapsed shares were trading around just $1 for too long.)

The flip side of China's exposure is negative for the U.S. -- that there's always the risk China could sell down its holdings, hurting the market value for these assets, even though such an action would end up hurting the value of its remaining Fannie and Freddie assets as well. This would be bad news for American holders of mortgage assets, such as financial institutions and the government.

The more nasty that Fannie and Freddie bonds' prospects look, the more likely that China will be inclined to take the short-term pain and just cut its holdings, which would complicate U.S. efforts to support the prices in this market. The latest de-listing has increased speculation that China's holdings will be adjusted down.